Question
Salamanca, Inc. plans to purchase new equipment for its manufacturing plant. Salamanca plans to purchase the equipment for a total cost of $900,000. The equipment
Salamanca, Inc. plans to purchase new equipment for its manufacturing plant. Salamanca plans to purchase the equipment for a total cost of $900,000. The equipment will be depreciated to zero over 5 years. Granada expects that the new equipment will have no impact on its sales revenue. However, Salamanca expects that its current annual fixed costs of $10,000,000 will be reduced by 3% annually as a result of using this new equipment. Salamancas tax rate is 30%. What operating cash flow (OCF) should Salamanca use in year 3 in its capital budgeting analysis if the project is expected to last 5 years?
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